Buying A House Is The Biggest Mistake You Could Make - The Renting Vs Buying ArgumentOk, the title is a tad bit alarmist I’ll admit, but I came upon an article about buying a house vs renting a house and at first I disagreed, then agreed, and then realized there is a tightrope that must be walked before picking a side to fall in.

I have a real estate license, or rather had one, as I believe it has expired by now, so I tend to use all my training and schooling in real estate to defend the “It is always better to own a house than to rent one” mantra. I often do this without thinking. It doesn’t take a license though. Many see owning a home as a sign of success in life. Much like driving a Cadillac Escalade when you know you’ll almost never fill more than one seat in the truck.

Buying does has it’s advantages, but the place you are at in life, and the lifestyle you current live makes a GIGANTIC impact on whether you can realize those advantages. For example, will it cost you more to live in the house you want to buy? Most people upgrade when they move into a home that they want to own. I saw a sale on a billboard this weekend stating “2007 Mustangs from $14,000” – but when you add tax and options on, will it still be $14,000? Americans are hardly realistic when it comes to purchases. We live up to our means and then freak out when something like a car tire or A/C repair throws us over the top of our spending limit.

Let’s take a quick look at some of the most highly touted benefits to owning a home:

  1. Buying A Home Gives You Tax Deductions

    Benefit:
    Most of the money paid in the first years of a mortgage, are interest, and interest is tax deductible. Other items such as Private Mortgage Insurance (PMI) can also be tax deductible.

    Reality:
    This is probably one of the biggest benefits to owning a house. But first, what is the difference in payment between your mortgage payment and the cost to rent a similar house? In the 2007 market, this could be almost 200%. What might cost $1,200 a month to rent, may very easily cost $2,400 a month to own. Especially once you consider items like property tax and HOA fees. At the end of the year, if you would have saved $4,000 in taxes paid to the government, but paid $12,000 more. You lost $8,000 dollars. Owning a house did not save you any money on your taxes at all.

  2. Appreciation – Real Estate Always Goes Up!

    Benefit:
    Historically, real estate does “go up” over time. And if money is guaranteed to be secure and life changes such as disability and losing a job will not affect your cash flow, then you can pretty much count on this. In 2005, Arizona property appreciation reached a high of over thirty percent!

    Reality:
    When you’re making over thirty percent return on your investment, life is great. However when foreclosure notices start to go up almost 250%, everyone starts selling and nobody is buying houses anymore, and when things get so bad the president has to deal with the idea of a federal bailout, the reality of life has a way of “crashing” down on you.

    The reality of this benefit is that if your home is by no means a burden to you financially and you can weather periods of 10 to 20 years, you can be reasonably certain your home will be a decent investment. However the lack of stability of the job market in the dot com boom, the real estate bubble, and other sectors has proven that most people’s jobs are NOT safe. Our rising poverty issues also show that financial freedom is not something the young American is born into either.

  3. Equity – Owning A Home Allows You To Build The Equity That Accompanies Appreciation

    Benefit:
    While the first decade of payments will merely chip away at the principle owed on the loan that finances the house you “own” with the bank’s blessing, appreciation helps sweeten that “free money”. If the home is appreciating at even a snail’s pace and you are still making payments, it’s a fact that you will build equity.

    Reality:
    But what happens when the market begins sloping down? We accept that a car loses a large portion of its worth when it’s driven off the lot. But we find it harder to accept it when the house we bought for $300,000 last year.. is now only worth $240,000 – and worse off, won’t even sell at $230,000 because the true “price to sell” is even lower. If you are like most homeowners, you didn’t have $60,000 or $70,000 for a down payment. If this was your first home, you probably went in with 100% financing, or something very close to that.

    And if I’m addressing you in a nutshell, your next Google Search may very well be for “adult diapers”. Negative equity in a house is a life shattering experience. With a car, financed over a couple years, it’s fairly easy to get out from under a bad purchase. But when you’ve wrapped up your entire life and married a piece of real estate, you begin to see what I mean by “what you ‘own’ with the bank’s blessing”. And the bank is a fickle mistress. The reality is that equity goes both ways. While it most normally accompanies upward trends, it most definitely can go down. We’re seeing this in the 2007 real estate market here in Arizona.

  4. Owning Your Home Brings Security And Stability

    Benefit:
    When you own your own home, you don’t have to worry about those heavy-footed folks upstairs, or the loud apartment next to you. Like most people you have 7,500-10,000 square feet of freedom! You can paint, tear down, rebuild, and do just about anything so long as you follow your HOA guidelines and zoning rules. With the added benefit of appreciation and equity growth, these feelings of security and stability from owning your own home increase even more. You may never have to move again!

    Reality:
    And many buyers buy into this. I know I have. But the fact is that the freedom of ownership is only as real as the ability to sell in current market conditions. Most homeowners, it is safe to say, are heavily tied to their homes. They upgraded, maybe counted in the tax savings to justify the higher per month costs. But your home can’t keep your income stable and secure and it can’t control the market, it just helps give you comfort that you know where you’ll lay your head tonight.

    When your financial situation becomes threatened, all this comfort, stability, and security flies right out of the window. While you do get benefits from “owning your home”, you’re still renting it from the bank until you own it outright. Owners in the 2007 market are now abandoning their homes because they won’t sell. What brought peace of mind is now the reason for more stress than ever.

So Are You Saying That Renting Is Better Than Buying?

I’m saying it’s a very careful line you have to walk. Can you afford to run into another 2007 market? What if things only get worse? Could you weather that? The truth is that most folks cannot. While renting is not a guaranteed safe zone, it still prevents much less room for potential loss than ownership can. Owning a house is indeed one of the biggest decisions you’ll need to make in your life.

If you’re hedging your bets that the market remains steady and up for a few years until you can rake in some hefty equity and appreciation, you probably shouldn’t be buying. Rent and save the difference.

*thanks Dustin*

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60 Comments

Comment by titan16
2007-08-13 15:12:19

What would you tell a woman who still demanded to own a house? My girlfriend keeps thinking CNN, FOX, MSNBC and the news are wrong and that she should still use her savings to buy a house?

It’s her money but it scares me to death.

Comment by MG
2007-08-14 09:32:57

Perhaps an example would help 😉

Ask her to lay out $100 in 10 dollar bills on the table.

Take 1 or 2 of those bills away.

Then laminate the rest so that she can see them, touch them, but cannot put them back into her pocket.

Explain that this is what the market is like. She’ll lose 10 or 20% in medium to worst case scenarios in depreciation/adjustment, and she’ll likely be unable to get her money back from her house even though she lists it for what the market says it’s worth. She can see, feel, and list the house – but someone has to buy it in order for her to get “what it’s worth” out of the house :)

 
Comment by Chris Austin
2007-08-14 11:04:55

It’s simple. Buy the house right.

Buy what you can afford and don’t buy it thinking of it as an investment. It is not, it is the banks investment and your liability. Understand the costs and benefits and most importantly don’t go into it thinking that your home is a bank account where you can magically tap the equity.

 
 
Comment by anon
2007-08-13 15:13:04

It’s simple, don’t buy something you can’t afford to take a loss on.

 
Comment by Godspiral
2007-08-13 15:13:57

The best comparison is renting + investing in REITs vs buying a home. REITs will benefit from the same price appreciation of homes, and also generate rental income, and hedge against your own rent going up. If you are concerned about real estate prices going down, its a lot easier to shift into another investment than it is to sell your home.

In Canada, the tax laws don’t allow interest deductions, but let you sell your home tax free.

If you are bullish on home prices, and you are in a high income tax bracket, and would like to “consume” by customizing your home, then it can make sense to own. Renting is much better for most. Flexibility being the biggest key.

 
Comment by JMC
2007-08-13 15:15:22

Great article!

Forwarded it on to my mom and dad to justify my rent costs! I always got the “you have to buy now before it’s too late!” from my mom…

 
Comment by dustin
2007-08-13 15:54:01

One consideration that is not being taken into account it that you can also look at a house as diversification in investment and that later in life you may use it with a reverse mortgage.

 
Comment by Chris
2007-08-13 16:00:28

A well rounded article and take on the issues. I’ve recently begun to look at getting an apartment and moving out on my own but a family member of mine was desperate to convince me that buying a house was a better idea. Now granted, there are plenty of extremely low priced houses in the area (or within a reasonable driving limit) that, when averaged out over 10-15 years are both cheaper, and a better investment than renting.

However, knowing that I have a poor credit score going in I’d hardly get a favorable rate and the house would be a fixer upper. I know going in that its a fool hardy endeavor. Maybe in ten years, now? No.

Renting just makes sense for someone my age (early twenties)

 
Comment by indy
2007-08-13 16:05:32

I love how the article started off with “it’s the biggest mistake you could make” (i.e. very alarmist) to “it’s a careful line that you have to walk.” (i.e. no shit)

One thing you leave out, and a lot of “the sky is falling” articles about home investment leave out:
It’s an investment that you
A) Live in.
B) Control the fate of (at least partially)

In the U.S., land ownership historically, overwhelmingly, is a very good investment. If there was a way to transport people to billions of other planets, I might see this changing, or if the population was going down, but it’s not.

 
Comment by RG
2007-08-13 16:13:44

>>>But we find it harder to accept it when the house we bought for $300,000 >>>last year.. is now only worth $240,000 – and worse off, won’t even sell at >>>$230,000 because the true “price to sell” is even lower.

This is another real estate myth in disguise. If you can’t sell an asset at a given price, it is not worth that amount, period. An asset is worth what it will sell for, and not a penny more. Many homeowners delude themselves into thinking there is a true worth that may be higher than the market price, which isn’t so.

 
Comment by MG
2007-08-13 17:17:00

RG:

Very good point – I struggled with that definition because what a comp would show worth as or an appraisal would show worth as, is not the same as market worth which is really the only worth you should care about. And in a market like this, you’ll want to price accordingly so the ‘market worth’ is even less if you want a guaranteed quick sell.

 
Comment by MG
2007-08-13 17:20:10

indy,

I’m actually a proponent of ownership, and I should have been a bit more clear with point #4 which addresses that to a degree. The security comes from the fact that, if you live up to your loan obligations (and aren’t subject to some crazy eminent domain issue), the house is for most effects, “yours”.

The other benefit is leverage. Even 2% on $300,000 is more than 10% of $10,000. And with compound interest, leverage greatly helps speed up the eventual payout.

However, this was more a slap in the face for those who didn’t do the research and got sucked into a perfect world sales pitch and ended up with nothing to show for it and everything to lose.

 
Comment by Iuri Lammel
2007-08-13 17:31:58

“What might cost $1,200 a month to rent, may very easily cost $2,400 a month to own.”

$2,400 a month? Is it true?? I really don’t know…

Comment by Amy
2008-01-23 20:49:17

That’s absolutely true. We are paying $2400 in mortgage on our home, and comparable homes in our neighborhood are only renting for $1150 – $1250 per month. We’re stuck with this mortgage in Phoenix, and are now living in San Antonio because of my mother’s medical issues. We can’t rent our house out for what our mortgage payment is, and we can’t sell our home for what we still owe on it. Rock…hard place.

 
 
Comment by cman
2007-08-13 17:48:29

Another very important fact you are leaving out of the calculation is inflation. It works in the homeowners favor for both sides of the equation. If you lock up a 30 year fixed mortgage, that $2400/month you’re paying today in today’s dollars is a lot different from the $2400/month in future dollars you’ll still be paying 10+ years down the road. So while your $1200/month rent payment today seems like a good deal, in 10 years at 3% inflation that $1200 today is suddenly $1600 in 10 years, and almost $2200 in 20 years.

Point being – due to inflation, in most circumstances your monthly rent price will eventually catch up with your monthly mortgage price. And when that happens, you’re in a much worse boat than you would have been had you purchased.

Another important thing is how cheap mortgages are right now. While they aren’t at rock bottom anymore, 6-7% is still insanely cheap historically speaking. Lots of us could tell you stories about when mortgage rates were almost 20% in the early 80’s!

Bottom line – it’s a very complicated calculation and there is no hard and fast “always buy” or “don’t buy now”. BUT – a house should be treated like a long term investment (10+ years) – and historically speaking, there has never been a bad time to buy for 10+ years.

 
Comment by Evan
2007-08-13 17:55:45

I appreciate the financial advice side of this argument. But as someone who wants to put up the occasional shelf at 2am without asking for permission, I’m going to have to side with the buying a house option. My uncle used to say “you’re not buying a house, you’re buying a home”… of course, he’s been in jail for fraud for a while now.

 
Comment by Antoine
2007-08-13 18:36:13

This article also seems to speak to people who bought on 100% interest, bought more than they could afford, stretched themselves thin…

The best way to go, whether you buy or rent, is a little bit below your means, not above.

 
Comment by Cartman
2007-08-13 18:45:58

Other things to consider. Owning a house gives you stability renting doesn’t. I KNOW exactly what my payment will be for 30 years. No surprises, when I used to rent the prices never went down only up. Twice I had the apartment I was renting taken. Once over a condo conversion and once for the owners son wanting to live there. I also had an experience where management wanted to install garage doors on the garages for 1k apiece. There was a vote, tenants said no, management put them up anyway and raised the rent to pay for them. Also I can’t stand the noise in apartments. I very carefully chose my home in a very quiet neighborhood, and have enjoyed it very much for the last 10 years. I bought this house for 115k ten years ago and it’s worth over 300k now even in this market, my neighbor just sold his.So if my house were to drop 200k in value I think the whole economy would be tanking and a place to own would not be my priority anyway. Also just the little things renting, I can’t tell you the times I had to call management because someone was parking in my space, hit my car, wrecked the laundry, and on and on. Privacy is a major concern and is worth the price of ownership to me.

Cartman

 
Comment by Lawrence Tureaud
2007-08-13 20:15:58

Yeah but you renting bitches will still be the ones paying taxes for the federal bailout of the MBS industry! Pwn3d!

 
2007-08-13 20:22:03

[…] wanted ot point this out because I must be that one rare case that Buying a House is the Biggest Mistake you Could Make etc etc etc seems to to make you think doesn’t […]

 
Comment by TDK
2007-08-13 20:38:52

Another reason not to buy is if you’re buying a house with a partner…and a few years later the relationship breaks up. I saw this in San Jose in 1994. A young married couple bought a house at the top of the market for something like $600,000, the market crashed and their house was worth $400,000, then they divorced and she moved out. Now she had to pay rent somewhere else, and continue to pay her share of the mortgage until prices went up again, or sell the house and accept her share of $200,000 debt. Of course within five years Silicon Valley real estate reached new heights, but for a few years they were in trouble.

 
Comment by LK
2007-08-13 21:16:32

One thing that you neglect to mention is that even when the sale of your home gets you a negative return, you are still getting a portion of the money that you put into it back. When you rent 100% of the money you put into your rental is gone for good.

 
Comment by jb
2007-08-13 21:54:56

renting is fine if u are there temporarily or don’t want to tie up your money. but what kind of market are you in where the same house is 1200 to rent and 2400 to own?? i’m assuming you’re speaking of upkeep along with taxes, but i would imagine you won’t be renting that place much longer as the owner will have to go bankrupt. a basic rental philosophy is take the cost and add a little profit for the rent you will charge. i know it seems radical, but there are plenty landlords that do that.

i just wanted to chime in along with all the other comments that are positive about home ownership. renting has it’s place, but is not a long term winner.

 
Comment by David
2007-08-14 01:10:49

You’re much better off renting than buying unless what you’re paying in rent would cover the mortgage, then you should buy. There are only two advantages to owning:
1) Creative control
2) A sense of permanency

 
Comment by AR
2007-08-14 01:42:47

LK,

Let’s not forget insurance, property taxes and maintenance. You don’t pay any of it while renting. Also in some markets Mortgage to rent ratio is 2:1, in that case for the first 20 years you will be paying the equivalent of 120 to 150 % of the rent to the bank to borrow money to buy a house.

There are times it makes sense to buy but in some markets at the moment it doesn’t.

 
Comment by ST
2007-08-14 05:58:17

You should never buy the biggest house [largest loan] you can get. Especially your first home. You should make as much down payment as you can, buy a modest home, and make extra payments as often as you can. You will pay it off much much sooner, and thus really own it sooner.

 
Comment by Thimble
2007-08-14 10:06:38

the whole debate comes down to “it depends”.

it depends on the market.
it depends on the rate you can negotiate with the bank.
it depends on your job stability and/or job locale.
it depends on your lifestyle.
it depends on your financial discipline.
it depends on the marketability of the property.
it depends on whether you’re single, married or married with kids.

there are so many variables involved, the hard rules don’t apply at a large percentage of the time.

here are some hard rules that make sense:
1. do the math or at least get someone who’s good at math to help you with the math.
2. do some research on the market.
3. do some research on the property.
4. get advice from an impartial party.
5. don’t take a greater risk than you’re comfortable with.

Comment by MG
2007-08-14 11:31:56

Thimble,

It definitely does :)

In 2000 and 2001, I’d say go and buy that 1500 square foot 4 bedroom 2 bath for $130,000 – that is a good deal.

In 2006 and 2007 when I see that same home listed for $260,000 (and it was listed twice for that price range), it becomes much harder to justify.

 
 
Comment by Brian
2007-08-14 10:44:26

I can’t disagree with you more. Most of the “Realities” you discuss are the result of a growing trend of people working themselves into poor credit status and then taking out a risky mortgage. This is clearly evident now, with how the sub prime mortgage industry single handedly shook the market.

But what about responsible people, who understand the mortgage they are taking out, who have good credit standing and who have prepared and truly understand what they are getting into? There is hardly an argument you can make as to renting being the better choice.

The only argument you have is regarding the recent trend of housing value decreasing. Unless you are in the business of flipping houses for profit, this should hardly be a concern. Why? Because as you point out, the value of a house may go down over the course of a couple years, but ten years down the line you will have seen at least SOME appreciation. You should never look at a house as a short term investment.

I would also have to disagree when you say most people upgrade when they go from renting to buying. Personally, I downgraded, obviously to keep costs down. Regardless, to say a place renting for $1200 would cost $2400 a month is absurd, unless of course you’re referring to an ARM that shot through the roof. Which brings me back to my original point: We shouldn’t be telling people that renting is better than buying. It most certainly is not. Building equity and attaining net worth is absolutely necessary to our success and our subsequent generation’s success. What we must do, however, is educate potential home buyers so they understand what they are getting into.

There are certainly people who should put off buying a house until they get their eggs in a basket. Lenders have made it too easy to give a mortgage to somebody with bad credit. And now we’re seeing the effect.

Comment by MG
2007-08-14 11:30:25

I think we agree on a lot of issues. As I believe I stated in the article, I’m actually FOR home ownership. However today’s market, especially in cities such as South Chandler and Gilbert Arizona, rental prices vs mortgage payments are eye opening.

And the truth is that most folks DO upgrade when they move into a house. They know they’re going to be there for more than a year and so they want to make sure they get the better carpet or flooring, that they get the separate tub and shower, and that they get the landscaping they want for themselves and/or children.

What I think we’re disagreeing on is the reality of things vs what SHOULD be done. Americans are some of the most indebted individuals in the world. We have the freedom to do what others can only wish of in other countries and yet we’re so tied to our credit card, auto, and home debt that we’re anything but “free”.

 
 
2007-08-14 17:42:41

[…] Buying A House Is The Biggest Mistake You Could Make – The Renting Vs Buying Argument | The Arizona … (tags: advice analysis bubble buy comparison economics economy security house taxes housing renting realestate buying finance *) […]

 
Comment by Obbop
2007-08-14 21:37:22

The chap stating renters don’t pay property taxes is delusional.

That cost is included in part of the rent you pay, unless the owner is some sort of Decent Samaritan who does not reflect property tax in what is charged for rent and the owner is likely renting at a loss and the IRS will dun him for this.

And, you “own” your house only as long as you pay the taxes.

Seems sinful to tax that which is needed to sustain life itself.

Shelter, food, air, water……. how could any moral person or entity tax those? Get the tax revenue elsewhere.

Comment by Kate
2007-12-04 11:22:33

You need a road to get to and from your shelter to and from anywhere else? Taxes. You want to eat only the food you can grow yourself out of the ground? Taxes. You want EPA to let poisonous gases pour into what you breathe in the name of profit? Taxes. Want water from a ditch out back, or that’s been cleaned in a treatment plant? Taxes.

I hate’m too friend, but living requires paying–one way or another.

 
Comment by MG
2007-12-19 20:36:03

While this is the sound decision for someone with the means to flirt with the margin like that, many owners renting homes out in this market simply can’t afford to add property taxes, let alone basic monthly costs like HOA fees, into the rent.

Not when their neighbor is renting an identical house for $50 less.

You’ll find interesting times when you talk to 3 owners on the same block and mention, “well XXXX street will do it for $X,XXX”. I’ve met many owners willing to eat whatever they could so long as it was LESS than their next month’s mortgage payment for an empty house. Some is greater than none for sure.

 
 
2007-08-15 11:42:05

[…] Buying A House Is The Biggest Mistake You Could Make – The Renting Vs Buying Argument […]

 
Comment by Niran Sabanathan
2007-08-15 21:18:37

The house prices here have doubled in the last three years. I am glad I bough the house when I did, because my mortgage( plus taxes) is lower or than what I would pay to rent a similar property. Many rental properties are being converted to condos as well and rent is skyroceting because of the low turnover. I like having some illusion of control of my property and not have to worry that “the management “will decide to go condo. Having said that, this wold be a scary time to buy and be stuck with a high mortgage as house prices stabilize or crash.

 
Comment by Robin
2007-08-16 20:33:25

From what you’ve said, owning isn’t actually the problem. It’s the debt you incur to own. Negative equity and terrible interest payments are the result of the mortgage, not the house.

Save up and buy at a lower loan to value ratio. You will neither have to worry that you are thowing away money to a landlord nor fret the ups and downs of the market as it hits home equity values and interest charges.

Comment by MG
2007-08-16 21:45:48

Yep, you are correct. Renting is very rarely the best solution and in the long term the market proves that. But in this decline in addition to the “I can get a loan too!” mentality floating around, for the majority of people right now the title is a pretty fair statement.

 
 
2007-08-17 10:51:32

[…] price was a major stretch at $567,000. But the couple, who had sold a home a few years earlier to move to a better area, was tired of renti…. Mr. and Mrs. Montes convened a meeting with their two teenage daughters around the kitchen table […]

 
Comment by Stuart
2007-08-17 17:32:17

This sounds like an article written with the current winds firmly in view. Unfortunately, what the writer, and most of the commenters seem to miss is that housing is not a short term investment. With the exception of flippers and speculators, most people enter the market looking to own for 10 – 30 – till they die, years. The market has fluctuated plenty over the years, what you need to look at is the the long term trend over the span you think you will own. In one of the examples presented above, you talk about negative equity – so what, until you sell that is an unrealized loss, no one is coming to your door to beat $40K out of you! If you wait 10 more years, most likely the market will be back.

This article could have been written in the early 90’s as well, and if I had read it then I would have missed out on the biggest inflation of home prices in history! Now that is not coming again, and I certainly did not see it coming the first time, but i did realize the market had been down for a while, it was time for a recovery – hence time to buy. Buying at this point would be buying into a declining market, who knows how long this ‘hangover’ is going to last, or how bad its going to be, but I can tell you one thing, it will end and home prices will again head up.

They are not making any new land.

 
2007-08-18 10:05:26

[…] Buying A House Is The Biggest Mistake You Could Make – The Renting Vs Buying Argument | The Arizona… (tags: finance house) […]

 
Comment by Joe -- NYC Real Estate Broker
2007-08-18 18:38:42

The simplest rule in real estate…Buy when interest rates are high. Yes, high. If you buy when they are high, and your payment is $2000/month and you can afford it, then when rates lower and you can refinance for a lower monthly payment to say $1800/month. The national housing market is a mess thanks to the Wall Street securitization of mortages in the form of collatoralized debt obligations. So glad I work in the Manhattan market…

 
Comment by Bill
2007-08-18 19:23:39

This guy is a retard. If you rent some place, you’re going to pay 3/4 what you would pay on a mortgage. Thats cheaper in the short term, however, that money is just going bye bye. If you buy a house then you’re investing that money into something you own. Even if you take a 30% hit on a 300 k house, you would still be gaining money owning a house because the money you were paying to the mortgage (shy of interest) would be more than the money you would save by renting. Furthermore, the reason that foreclosures are so prevalent is because people have adjustable mortgages, so it’s their own stupidity. Overall though, a house pays off when you own it because you’re paying money toward something you own rather than someone else’s property and profit. Get a clue.

 
Comment by Bauski
2007-08-18 20:24:54

I’m so glad somebody wrote this. I agree 100%. Many people seem to think these days that buying a house will end most of their financial worries, but in reality buying a house is not a cure all. The money that is spent on buying and paying for a house plus the amount it takes to take care of and remodel the house is a substantial amount. People cannot just go into this thinking the price is all they pay for.

Comparably renting does not bring you all the benefits of putting money into a house, but there are many reasonable places that fulfill a family’s need without wasting too much on excess. Some of the older apartments are in nicer neighborhoods and are cheaper because of their facade. 600 a month including utilities and electric plus free basic cable is not bad at all for a 2 bedroom with 1 bath. Saving money until you are sure you can go into the market with a 40% financial backing will not only save you the trouble of paying later but give you enough security to focus on fixing up the house instead of getting by on payments little by little.

 
2007-08-19 19:58:44

[…] Buying A House Is The Biggest Mistake You Could Make – The Renting Vs Buying Argument | The Arizona … (tags: finance realestate housing buying renting taxes money) […]

 
2007-08-19 21:26:41

[…] Buying A House Is The Biggest Mistake You Could Make – The Renting Vs Buying Argument | The Arizona … (tags: real estate) […]

 
Comment by ian
2007-08-21 16:18:35

“What might cost $1,200 a month to rent, may very easily cost $2,400 a month to own.”

Makes no sense. What kind of idiot investors do you have in your market that rent out property for half of their outlay? In the real world, investors won’t buy a property unless the expected net after expenses is HIGHER than the mortgage payment. If rents don’t cover the mortgage plus taxes and insurance, that means the highest and best use of the property is not a rental but an owner-occupied property. That’s the reason why only crappy houses and crappy locations have high tenant use; all the good areas and good houses are 95%+ owner-occupied. Meaning, if you’re renting, you’re getting a lower quality and a poorer location than you could get with the same money as an owner. Which should tell you something right there.

Comment by MG
2007-08-21 17:18:57

Actually, in the Gilbert market, just through browsing Craigslist, you’d find plenty of properties that are listed for 350k-450k but rent for 1300-1500 dollars.

That line wasn’t in reference to professional investors as much as it was to amateur investors. True investors turn a profit on the purchase, not the sale, as they say.

These homeowners are likely just hoping to get SOME money, whether it’s from a sale or rental of their homes. Which of course is why you’ll find months of rental ads on craigslist as well as a high “Days on Market” count on their listing.

They’re desperate.

 
 
2007-08-21 18:00:47

[…] Buying A House Is The Biggest Mistake You Could Make – The Renting Vs Buying Argument | The Arizona … – […]

 
Comment by Ubu Walker
2007-08-27 16:53:23

Whether it is better to rent or buy a home is a multifaceted decision
which has no easy answer.

The New York Times has a great calculator to figure out whether it is better to rent or buy:

http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html?ex=1188360000&en=e476c74b63929660&ei=5070

The nice feature of this calculator is that it will tell you after how many years buying will be better than renting (or vice versa). It all depends on the assumptions you make, such as whether housing prices will go up, or down, and interest rates, etc.

Comment by MG
2007-08-27 16:57:04

Thanks Ubu!

 
 
2007-09-21 07:29:41

[…] Buying A House Is The Biggest Mistake You Could Make Renting Makes You Richer Renting vs Buying: The Realities Of Home Buying Renting Vs Buying A Home, Which Is Better? […]

 
2008-04-29 11:22:35

[…] Very important questions to ask yourselves as we get more and more statistics from very reputable sources. Is it really a better time to rent than to buy right now? […]

 
2008-05-14 11:11:27

[…] blurbs to pretty much sum up the financial status of the country. Sometimes it feels good to be “throwing money away on rent”. Especially as I almost took the dive on a “great offer” last year before deciding to […]

 
2008-05-16 12:29:11

[…] seeing this more and more – the benefits of owning a house are no longer outweighing the benefits of renting instead. With high profile folks like Jose Canseco electing to be foreclosed on rather than make […]

 
Comment by mlimberg
2008-05-23 15:42:06

Anyone who insists that “Now is the time to buy a House”, is both an idiot and a real estate agent……

 
2008-09-10 11:33:57

[…] this new economical era, people are beginning to question, “Should I buy a house or rent a house”. Prices are falling, but they don’t appear to be stopping. Many people are scared after […]

 
Comment by Mark
2009-05-18 20:33:10

It’s amazing how economies revert to the mean over time.

My wife and I moved to AZ 2 years ago. We rented a house in North Scottsdale for $1350 per month, and (smaller)homes in this neighborhood were selling for $375k at the time. A mortgage payment @ 6% would have been $2100+ taxes+ HOA. (around $2300 all in)

Now, two years later, some of these homes have been sold for well below $200k

Rents are about the same as they were two years ago.

The wild card in all of these transactions was the “creative” mortgages that allowed the “owner” to pay $1000 a month on a $400k debt – for a while. Those are the homes that were rented at seemingly crazy low prices. They’re the same homes being sold as foreclosures right now.

 
Comment by Momo
2009-10-13 10:25:12

Well, we bought a 3-story, 7-bedroom house. Our mortgage is about $1,150. We rent 4 rooms out. Before owning this house we rented a 1-bedroom apartment for $675 (+ utilities).
Was it a bad idea? We don’t think so.

 
Comment by w
2010-07-11 22:32:45

Each simple rule will have exceptions. But, as a general simpleton-type financial rule for first-time home buyers:

FORMULA:
If (monthly rent) < (monthly mortgage + taxes + upkeep), then rent

If you think you might be moving in a few years to another city or another state, then also rent.

Otherwise, think about buying and look at the other factors. The formula above is meant as a test of undervalue or overvalue — a way to pay attention to the underlying asset.

 

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